Where you grow up plays a significant role in achieving the 'American dream.'

• A study by economists from Brown, Harvard, and the U.S. Census Bureau reveals that the many factors that determine neighborhoods significantly influence children's future earnings.
• Earlier this year, a World Bank conference compared global mobility levels, with the findings presented.
• One expert stated that while we are often perceived as the land of opportunity where individuals can rise from humble beginnings to achieve success, this notion is not entirely accurate based on our current observations.

The economic status of a child in the U.S. is increasingly determined by where they grow up.

A study by economists from Brown, Harvard, and the U.S. Census Bureau found that neighborhood factors, including school district quality, poverty rates, and social capital, influence children's future income. The research was presented at a World Bank conference earlier this year, comparing global mobility levels.

Being surrounded by a good neighborhood can increase the likelihood of success in adulthood, but it is also crucial to be exposed to these areas at a young age. Sociological factors, although challenging to measure, significantly impact economic outcomes.

According to John Friedman, professor of economics at Brown University and co-director of Opportunity Insights, these insights could help policymakers shape upward prospects by informing them of the most influential decisions. Despite the national geographic span of the U.S., intergenerational mobility varies across the country. Even within a city, mobility can differ significantly between neighborhoods that are geographically close to each other, Friedman stated.

The Opportunity Atlas, developed by Friedman and his team at Opportunity Insights, uses U.S. Census and tax data to track children's outcomes in adulthood. According to the data, a child who grows up in one neighborhood can earn an average of $56,000 as an adult, while a child who grows up in an adjacent area can only expect to earn $33,000.

According to Friedman, exposure to local places is crucial, particularly during childhood.

The age of a child at the time of a move is as important as the neighborhood they move to in shaping their earnings as adults, according to Friedman. Specifically, the older the child is when they move, the lower their projected income at age 35. On the other hand, no income gains can be measured from moving to a higher-mobility neighborhood at age 24.

High-mobility neighborhoods share common characteristics such as lower poverty rates, stable family structures, high social capital, and better school quality, despite it being challenging to identify all their unique features.

According to Friedman, policies have a greater impact on individuals' trajectories during childhood, although there isn't a clear-cut boundary.

Measures of mobility

Both relative and absolute mobility assess different aspects of upward social mobility. While relative mobility measures the likelihood of moving up the income distribution within a country and has remained constant in the U.S., absolute mobility evaluates the probability of a child born in poverty achieving a better standard of living.

"Although relative mobility in this country has remained relatively stable over time, it is more difficult to move from the bottom to the top compared to other developed nations, particularly in Europe and developing European countries. This contradicts the perception of the United States as the land of opportunity, where individuals can easily climb the social ladder," stated Kreg Steven Brown, director of economic mobility policy at the Washington Center for Equitable Growth.

The probability of a child from the bottom half of the income distribution in the U.S. making it to the top quartile is 13.1%, while in Denmark it's over 20%. China, South Africa, and Morocco all have higher probabilities than the U.S.

Since 1980, the U.S. has seen a decline in absolute mobility across generations, coinciding with an increase in economic inequality. Although slowing economic growth compared to developing economies may be a contributing factor, the American economy is becoming increasingly immobile compared to its developed-economy counterparts.

Less upward mobility is associated with higher levels of income elasticity, as shown by the "Great Gatsby Curve."

In contrast to other developed countries such as Germany, Canada, Japan, France, and Scandinavian nations, the United States has a higher concentration of wealth among a small group, as well as lower upward mobility.

Possibilities from education

Measuring inequality and mobility is a challenging task for economists due to the difficulty of collecting data sets that span over a generation and the numerous social factors that influence these subjects, such as racial segregation, gender, education, household structure, and environment. Identifying causation, correlation, and confounding variables in studies remains a significant challenge.

According to Brown, it is challenging to determine the effectiveness of an intervention because we lack the patience to wait for a generation to observe if a specific approach actually brought about the desired change.

Greater mobility can be achieved through education.

Juan Palomino, a research scholar at Universidad Complutense de Madrid, stated that providing good-quality education without the burden of debt is one of the biggest equalizers or mobility-enhancing policies.

Education is a policy area with a significant impact, and there are numerous policy levers that can enhance children's long-term outcomes, according to Friedman.

According to OECD data, the U.S. ranks second only to England in terms of the world's highest university tuition fees. Over the past 20 years, tuition and fees have more than doubled, and as of the third quarter of 2021, outstanding student loans total $1.75 trillion.

The U.S. financial aid system could use some enhancements, according to Friedman. According to data from the Susan Thompson Buffett Foundation, Nebraska high school graduates who received aid awards showed only a slight increase of 8%, from a starting point of 62%, in the percentage of those who attended a four-year college.

In June, the Supreme Court ruled against the Biden Administration's student loan forgiveness plan, preventing millions of borrowers from having their debts reduced.

According to Friedman, although college is now more expensive than before, it still remains the best investment most people can make.